In this paper, we empirically analyse infra-second datasets of the SPDR S&P 500 ETF (specifically, the ETF of the S&P 500 exchanged on BATS, named SPY.Z) in order to explain how high-fre- quency trading (HFT) activities (aggressive and passive) impact market volatility and the bid-ask spread before and after an exogenous shock (i.e., the 2016 US presidential election). Using SPDR S&P 500 ETF datasets as a proxy for the market on regular volume trading days (November 3, 2016) and on high-volume trading days (November 9, 2016), we show that HFT, on average, has a disturbing action mainly on regular volume trading days, whereas on high-volume trading days, it appears to have a stabilizing effect by balancing both the volatility and bid-ask spread. That is, HFT as a whole has a more neutral impact on the market’s volatility and bid-ask spread than the single aggressive and passive components. In fact, aggressive HFT has a consistent ne- gative effect that increases, on average, both the volatility and bid-ask spread, whereas passive HFT displays a positive effect that decreases, on average, the volatility and bid-ask spread.

How does HFT activity impact market volatility and the bid-ask spread after an exogenous shock? An empirical analysis on S&P 500 ETF / Bazzana, Flavio; Collini, Andrea. - In: THE NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE. - ISSN 1062-9408. - 54:(2020). [10.1016/j.najef.2020.101240]

How does HFT activity impact market volatility and the bid-ask spread after an exogenous shock? An empirical analysis on S&P 500 ETF

Bazzana, Flavio;
2020-01-01

Abstract

In this paper, we empirically analyse infra-second datasets of the SPDR S&P 500 ETF (specifically, the ETF of the S&P 500 exchanged on BATS, named SPY.Z) in order to explain how high-fre- quency trading (HFT) activities (aggressive and passive) impact market volatility and the bid-ask spread before and after an exogenous shock (i.e., the 2016 US presidential election). Using SPDR S&P 500 ETF datasets as a proxy for the market on regular volume trading days (November 3, 2016) and on high-volume trading days (November 9, 2016), we show that HFT, on average, has a disturbing action mainly on regular volume trading days, whereas on high-volume trading days, it appears to have a stabilizing effect by balancing both the volatility and bid-ask spread. That is, HFT as a whole has a more neutral impact on the market’s volatility and bid-ask spread than the single aggressive and passive components. In fact, aggressive HFT has a consistent ne- gative effect that increases, on average, both the volatility and bid-ask spread, whereas passive HFT displays a positive effect that decreases, on average, the volatility and bid-ask spread.
2020
Bazzana, Flavio; Collini, Andrea
How does HFT activity impact market volatility and the bid-ask spread after an exogenous shock? An empirical analysis on S&P 500 ETF / Bazzana, Flavio; Collini, Andrea. - In: THE NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE. - ISSN 1062-9408. - 54:(2020). [10.1016/j.najef.2020.101240]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11572/268265
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